Directive 011: Licensee Liability Rating (LLR) Program

1 Directive 011. Release date: March 31, 2015. Effective date: August 1, 2015. Replaces previous edition issued April 10, 2014. Licensee Liability Rating (LLR) Program : Updated Industry Parameters and Liability Costs The alberta energy Regulator has approved this Directive on March 31, 2015. <original signed by>. Jim Ellis President and Chief Executive Officer 1 What's New in This Edition This updated Directive replaces the version issued on April 10, 2014. As provided for in Directive 006: Licensee Liability Rating (LLR) Program and Licence Transfer Process, the alberta energy Regulator (AER) reviews, updates, and publishes the industry parameters and the regional abandonment and reclamation costs used in the LLR calculation as required.

2 This update is being released as part of a three-year phase-in of updated parameters and costs. For more information, please see Bulletin 2013-09: Licensee Liability Rating (LLR) Program Changes and Implementation Plan, released March 12, 2013, and available on the AER's website at 2 Effective Dates The LLR formula parameters and costs specified in this Directive are effective August 1, 2015, and remain in effect until rescinded by the AER. The AER typically updates and publishes parameters and costs annually in April. Directive 011: Licensee Liability Rating (LLR) Program : Updated Industry Parameters and Liability Costs (March 2015) 1. alberta energy Regulator 3 Industry Deemed Asset Parameters The industry deemed asset parameters used in the LLR Program are based on industry information and are as follows: The industry netback is a rolling three-year provincial industry average netback.

3 The industry netback is $ per cubic metre oil equivalent (m3 OE). The shrinkage factor is a rolling three-year provincial industry average. The shrinkage factor is (multiply gas production by to obtain sales gas volumes). The m3 OE conversion factor is a rolling three-year provincial industry average. The m3 OE. conversion factor is 103 m3 gas/m3 oil (divide sales gas volumes by to convert gas volumes into oil volumes). 4 Industry Deemed Liability Parameters The regional well abandonment costs used in the LLR formula are based on information provided to the AER through an annual well abandonment cost review conducted by a third party. The facility abandonment cost and well and facility reclamation costs used in the LLR formula are based on the most recent cost assessment conducted by the AER.

4 As indicated in appendices 8 and 9 of Directive 006, the LLR Program established separate maps for determining regional abandonment and regional reclamation costs. 5 Well Abandonment Cost Parameters The abandonment Liability for a well considers its geographic location based on the Regional Abandonment Cost Map, depth, downhole completion scenario, and where applicable, the number of events requiring abandonment, the costs to address groundwater protection, surface casing vent flows, and gas migration. The process for calculating a well's abandonment Liability is detailed in appendix 6 of Directive 006. 6 Regional Well Abandonment Cost Tables The basic abandonment cost of a well in each geographic area, by depth and downhole completion scenario, is as follows: Area 1.

5 Medicine Hat Depth (m) Empty not perforated Empty perforated Tubing only Tubing & rods 0 1199 $12 800 $17 975 $36 384 $45 993. 1200 1999 $12 800 $19 060 $41 790 $50 227. 2000 2499 $12 800 $19 273 $62 606 $75 506. 2500 2999 $12 800 $20 757 $67 950 $85 003. 3000+ $12 800 $23 910 $87 240 $114 236. 2 Directive 011: Licensee Liability Rating (LLR) Program : Updated Industry Parameters and Liability Costs (March 2015). alberta energy Regulator Area 2. Calgary/Edmonton Depth (m) Empty not perforated Empty perforated Tubing only Tubing & rods 0 1199 $13 300 $18 476 $41 361 $50 455. 1200 1999 $13 300 $19 562 $47 411 $56 505. 2000 2499 $13 300 $19 741 $65 782 $78 105. 2500 2999 $13 300 $21 194 $71 588 $88 642.

6 3000+ $13 300 $24 646 $92 451 $119 446. Area 3. Drayton Valley/Grand Prairie Depth (m) Empty not perforated Empty perforated Tubing only Tubing & rods 0 1199 $13 500 $18 776 $45 513 $54 608. 1200 1999 $13 500 $19 862 $55 568 $60 658. 2000 2499 $13 500 $22 041 $67 020 $79 343. 2500 2999 $13 500 $24 244 $72 836 $89 880. 3000+ $13 500 $27 975 $94 077 $121 072. Area 4. Lloydminster Depth (m) Empty not perforated Empty perforated Tubing only Tubing & rods 0 1199 $12 800 $17 975 $36 037 $46 455. 1200 1999 $12 800 $19 060 $41 790 $50 227. 2000 2499 $12 800 $19 273 $62 606 $75 506. 2500 2999 $12 800 $20 757 $67 950 $85 003. 3000+ $12 800 $23 910 $87 240 $114 236. Area 5. Athabasca/Peace River Depth (m) Empty not perforated Empty perforated Tubing only Tubing & rods 0 1199 $13 500 $18 807 $45 051 $53 426.

7 1200 1999 $13 500 $19 776 $54 991 $60 081. 2000 2499 $13 500 $20 641 $66 719 $79 043. 2500 2999 $13 500 $22 194 $72 526 $89 579. 3000+ $13 500 $25 675 $93 056 $120 772. Area 6. High Level Depth (m) Empty not perforated Empty perforated Tubing only Tubing & rods 0 1199 $17 400 $26 172 $58 482 $65 814. 1200 1999 $17 400 $26 641 $65 957 $72 493. 2000 2499 $17 400 $27 510 $75 769 $89 069. 2500 2999 $17 400 $28 278 $82 789 $102 453. 3000+ $17 400 $28 744 $102 708 $134 177. Where applicable, the following parameters are to be applied: Groundwater protection cost $46 288. Vent flow repair cost $169 309. Gas migration cost $67 868. Multiple event sequence factor 25%. Directive 011: Licensee Liability Rating (LLR) Program : Updated Industry Parameters and Liability Costs (March 2015) 3.

8 alberta energy Regulator 7 Facility Abandonment Cost Parameter The facility abandonment cost parameter for each well equivalent is $17 000. 8 Well and Facility Regional Reclamation Cost Map The reclamation Liability for a well or facility considers its geographic location based on the Regional Reclamation Cost Map and its well equivalent. The process for calculating a well or facility's reclamation Liability is detailed in appendix 6 of Directive 006. The cost per well or well equivalent in each of the seven regional reclamation cost areas is as follows: Grasslands Area East $16 500. Grasslands Area West $25 250. Parklands Area $27 250. Foothills Area $29 250. Alpine Area $42 125. Western Boreal Area $34 000.

9 Boreal Area $23 875. A Licensee is required under Part of the Oil and Gas Conservation Rules to provide any security deposit amount resulting from the changes contained in this Directive in accordance with AER. monthly and transfer LLR assessment requirements. The parameters and costs in this Directive are used to calculate deemed assets and liabilities in accordance with formulas contained in Directive 006. Inquiries regarding the requirements of this Directive or any aspect of the LLR Program should be directed by e-mail to or to the Liability Management Team's help line at 403-297-3113. 4 Directive 011: Licensee Liability Rating (LLR) Program : Updated Industry Parameters and Liability Costs (March 2015).